When a Complaint is drafted, it must be done with precise intent. All of the required allegations as required by the RPAPL and CPLR must be recited in order to avoid title concerns upon a third party. If there are additional concerns that should be addressed, it is best to add same to the Complaint. One of those concerns is the lien position of the foreclosing party.
When a party is foreclosing in a 2nd or even a 3rd lien position, it is suggested that the prior lien or liens shown in the foreclosure search be added in the Complaint with specificity. The Complaint should recite that the foreclosure action is subject and subordinate to said liens and failure to recite this in the Complaint, the Judgment and the Terms of Sale could result in a sale being overturned. A recent decision addressed this concern.
In Board of Managers of the 442 St. Marks Ave. Condominium v. Milord, 212 A.D.3d 760 (2nd Dept. 2023), a judicial auction was held on October 11, 2018 and the winning bid was placed in the sum of $490,000.00 with a deposit of $49,000.00. Thereafter, a title search was procured which revealed the existence of a senior mortgage held by Deutsche Bank. The purchaser of the premises moved to set aside the sale by failure to reveal said senior lien in its foreclosure action. The Supreme Court set aside the original sale but did not turn over the deposit to the purchaser and directed the referee to release the deposit to the plaintiff. The purchaser then appealed this decision, and the Appellate Division reversed the Supreme Court decision and set aside the sale and returned the deposit. The Appellate Division took the position that the Supreme Court agreed that plaintiff’s failure to disclose the senior mortgage cast “suspicion on the fairness of the sale”. Since they set aside the sale, the Court felt that the deposit should be returned. In addition, the Court stated that a judicial sale has a different standard. A sale of property “in the haste and confusion of an auction room is not governed by the strict rules applicable to formal contracts made with deliberation after ample opportunity to investigate and inquire”.
To avoid a situation like this, the Complaint, the Judgment and the Terms of Sale should specifically recite the senior lien that the sale was subject to. If the pleadings contained said language, the purchaser would have no legal argument to set aside the sale. If you are foreclosing in an inferior lien position, please be guided accordingly.
Please contact David Schwartzberg, Foreclosure Counsel, at
dschwartzberg@advantagegroupny.com or 631.549.7721 with any questions.